The exit: Fear and Loathing in M&A for founders

This post appeared first on Venturebeat.

You’re sitting in your office late on a Friday, alone. Hot wet tears are streaming down your cheeks. Your mobile phone rings constantly. Your CTO, shareholders, and everyone else is calling to learn how the meeting went. The COO who joined you on the conference call has already left and is taking Monday off.

And, of course, now there’s a dilemma.

After months of prep, tech and business development meetings, megabytes of pre-due diligence material, an ambitious joint business case, synergies, frank and open discussions about feelings and lifelong goals, dinner with the proposed acquirer’s leadership team, and a process that seemed to be going so smoothly, you have just hung up on the buyer’s VP of corporate development. They are excited about your joining the family, fantastic opportunity, etc. and they are happy to offer you precisely 40 percent of what you were sure your company was worth.

How do you explain this to your shareholders? Your co-founders? Who is to blame for this life altering disappointment? Why you? Why now?

Fear is a powerful negotiating tactic

There are a few important things to be learned from this scenario. First, Bovee’s law of mergers and acquisitions: if there is going to be bad news it always comes late on Friday afternoon, just as you are making plans for the weekend. You receive a call from the chairman of the board at 4:53 p.m., and you know, immediately, from the tone of her voice what she is going to say. It always happens on Friday.

Second, driving value in an acquisition has nothing to do with all that stuff you were working so hard on the last few months. Value in an acquisition is driven by fear. Period. What is going to motivate a CEO to spend top dollar for an acquisition? Feelings? Synergies? A really, really good imaginary business case? No. The threat of being heckled on stage at her keynote because she publicly lost a perceived major advantage to a competitor at the last moment. I’m not going to name names, but I just saw this happen a few weeks ago, and it sucked.

Let’s go quickly back through the list I gave you in “The Exit” part 2: you have an ambitious global expansion plan, a data room, protected your IP, cleaned up your cap table, and made sure key people are happy. You have been practicing the pitch and the story relentlessly, obsessively with your co-founders, and have set up your internal corp dev team and “wargamed” all the scenarios and negotiating points. You were ready for this. You were so ready, but now it looks like it will be impossible to close a 60 percent gap. The buyer is willing to issue a term sheet, and wants 30 days exclusivity, but the only alternative seems to be to back away from the table. And the disappointment is going to hit your team hard.

Everything that you did is important, but the key piece is to manage the acquisition so that you can create significant and true leverage. And the best leverage is to have other acquirers sitting eagerly at adjoining tables.

Timing is everything

Timing your discussions with competitive bidders is absolutely essential, and it is by far the hardest part. This is where investors and board members come into play. In certain cases, you might even want to consider retaining an M&A professional, because this piece requires full-time dedication. In the early stages, you, as a founder, shouldn’t be too aggressive, and if you are the CEO, and particularly if you are also heavily involved in sales for your company, you may want to hand off the early M&A outreach to someone else. You’ll get involved soon enough.

This part of the process is very much like enterprise sales, except the beginning is much easier. And the middle is much, much harder. You need to open a big pipeline of potential acquirers, and reach out to them all systematically. There are a few factors that are working against you here, and which make acquisitions rare (and which make timing an acquisition to maximize your leverage not only rare, but nearly impossible): there are probably only one or two dozen companies who are realistic acquirers for your company, but among this set there is a high probability that the subset having both budget and having earmarked companies in your sector as strategic targets for that year is zero. That funnel gets so narrow so quickly that you really need to put energy into the early stage.

Making the initial calls is easy. Many people, battle-hardened from years of enterprise software sales, will be familiar with negotiating access to decision makers. That doesn’t happen so much in M&A. Get your chairman of the board or one of your VCs to call their CEO. ‘This is about a potential acquisition…’ There, that stage is done. You have negotiated access to the power person.

I get a lot of questions from founders about trying to quantify the early M&A process: what is Google buying this year? How much did they spend on companies in our sector? What about Apple? And you can quantify these things to a certain extent, but they don’t help much beyond building the initial pipeline. M&A is particular for each company, and is tightly wound with company culture. It’s a real black box, in many cases. For instance, Google does spend lots of money acquiring early stage companies. And they do lots of deals, but they are also quite well known for acquiring talent. In general, the deals are not often big. And if you are talking to a large acquirer like a Cisco or Yahoo!, they have often developed their shopping list for that budget period long before your conversation started. You will have limited visibility or influence. I’m sure your technology/team/market is amazing. The VP of corp dev probably doesn’t care.

Sorry, no intermission for M&A

For similar reasons, the middle part of your M&A pipeline development gets hard. This is where you should be personally involved, or someone who pitches your company really, really well. In the best case, the acquiring CEO will delegate representatives from corp dev, the CTO team, business development/strategy and possibly product in early meetings to assess the opportunity. In the worst case scenario, you will find yourself talking to a corp dev associate who was an investment banker two years ago. In this latter case, it probably isn’t a deal. You found yourself outside the core acquisition bucket for that budget year, and they kicked it to an associate. It’s not a priority, or your first pitch was really poor.

When you find yourself on track with the right teams, schedule your time very carefully so that you can bring them up to speed in tandem. If you need to slow things down, don’t delay responses or deliverables: make sure you appear totally on the ball, and have your material prepped. Respond to data requests within 24 hours. But push meetings out if you need to. You are very busy. Your schedule doesn’t open up for 2.5 weeks.

If this process works out well, you might find yourself in acquisition discussions with 2 or more competitors, and this is the ideal situation. If you have a growth scenario (fundraising and maybe an IPO somewhere down the road) that is nice, too, but the threat of a competitive acquisition drives the strongest leverage. But you do also need to handle these discussions diplomatically. Don’t be too aggressive. Figure out ways to signal, discreetly, and as early as possible, that you are in discussions with other buyers. But don’t throw it in anyone’s face. They will back off quickly. If you can signal this well it should help you avoid the ‘disappointing initial offer’ scenario as much as possible. It can save you some tears and a ruined Friday night.

What to do about a disappointing offer

If you do receive a disappointing offer you can back off graciously. And often a clearly worded email restating the positive sides of the acquisition, the synergies (technical and cultural) the palpable excitement among your founding team, and the significant upside in the joint business case, can work late-stage miracles in pre-term sheet discussions, particularly (and often only) if coupled with some serious competitive leverage. If you have the guts to walk away the buyer will sense it, and you can quickly qualify or repair the deal.

But also be aware that there are limits. I’m sure you have done your homework as part of the development of your M&A pipeline, but look carefully at annual M&A spend and deal sizes of your potential acquirer. You have already agreed on an internal strike price. Reality check it, and if it looks like you could be headed for disappointment, get together with your team immediately and explore alternative scenarios.

At this stage, all the elements should be in place to start with a reasonable offer. There will be some verbal back-and-forth, standard negotiating, and you will probably spend a week or two arriving at what both parties consider a fair price and high-level terms. This is when the buyer will issue a term sheet.

Term sheet time

The term sheet is often surprisingly light after all of the process you have been through. It comprises an outline of the deal, is usually non-binding, and gets you ready for the final purchase agreement which is where the real fun begins.

Things to pay attention to in the term sheet: the buyer will almost always ask for a ‘no shop’ period, during which you can’t talk to other acquirers while the term sheet is negotiated. Obviously, push to keep this as short as possible. If you can get two weeks, that is awesome.

The term sheet should also include the purchase price, deal structure, escrow and ‘hold backs’, if any; there might be some HR stuff, termination, governing law and a few other points. You will spend the ‘no shop’ period negotiating all this. One important consideration: make sure that the terms are crystal clear, and do NOT under any circumstances, assume that you can change agreed terms simply because the document is non-binding. Attempting to do this gives a very bad signal to the buyer.

The buyer’s perception of risk will rise considerably in later stages of negotiation over the purchase agreement, and screwing up early communication and then attempting to backtrack during later, expensive legal wrangling can kill deals. Fast.

So, in a perfect world, you have managed a competitive acquisition process, it is Friday afternoon, and you just got off the phone with the acquiring VP of corp dev. The offer was only 17% off the strike price you had agreed with your internal corp dev team, and there is every certainty you can close the gap. And, in case you can’t, Acme SaaS and Widgets want to schedule a corp dev call next week. You give your COO a big hug and you both stroll off into the night to have a drink and plan your weekends.

Warum Österreich nicht das nächste Silicon Valley wird

Oder: Auf dem Weg zu Silicon Alps

Ein unauffälliger Landstrich zwischen zwei Gewässern, entlang einer vielspurigen Autobahn, ist die moderne Traumfabrik. Silicon Valley hat längst Hollywood abgelöst, wer heute von Berühmtheit und Erfolg träumt, hat Mark Zuckerberg, Elon Musk oder Steve Jobs vor Augen. Visionäre und begnadete Unternehmer, die dank der Entwicklung der Informationstechnologie reich und berühmt wurden.

Warum keine Österreicherin, kein Österreicher? Fehlt es an Talent? Unternehmergeist? Vorbildern? An allem ein wenig und doch auch wieder nicht. Die Stars unter den IT Unternehmern von morgen sind schon geboren und kommen auch aus Österreich. Und dazu braucht es nichteinmal ein „Silicon Valley“ Österreichischen Zuschnitts. Aber zuerst zurück zum Anfang.

Startups sind eine spezielle Form des Unternehmertums

Wenn es als Unternehmer darum geht seinen Lebensunterhalt zu verdienen und einige MitarbeiterInnen zahlen zu können, meistens im Dienstleistungsbereich aber auch in der Produktentwicklung, dann ist Österreich schon jetzt voll mit IT Entrepreneuren. Eine dichte KMU Landschaft mit lokalen Kunden ist Status Quo. Auch gibt es schon einige internationale Stars, Leuchttürme, wie Altova oder Automic (früher UC4), die ganz im Stillen erfolgreiche Unternehmen aufgebaut haben.

Was sich in den letzten Jahren entwickelt hat, ist eine Form der IT Startups internationalen Zuschnitts. Diese Unternehmen versuchen nicht nur einen Business Plan umzusetzen, sondern suchen nach einem nachhaltig, skalierbaren Businessmodell, also entweder einem neuartigen Produkt oder einem neuen Prozess, der sich überdurchschnittlich schnell skalieren lässt. Also genau jene Modelle die Mark Zuckerberg & Co. bekannt und berühmt gemacht haben. Diese Form des Unternehmertums braucht andere Kompetenzen und Erfahrungen.

Internationalität von Beginn an, schnelle, iterative Produktentwicklung um den so genannten „Product-Market-Fit“ zu finden (jene Nachfrage die Skalierung ermöglicht) und der Umgang mit Investoren gehören zu einigen der wichtigsten Merkmale. Startups sind also eine andere Form von Unternehmen, brauchen daher eine andere Art von Entrepreneur.
Diese Unternehmer, die bereit sind einen solchen Weg zu gehen, sind in Österreich noch rar. Es fehlen die Erfahrungen, die Rollenbilder und die Grundlagen. Alles eine Frage der Zeit, denn auch im Silicon Valley liegen die Grundlagen dieser „Industrie“ weit in der Vergangenheit. 1969 machten sich zwei ehemalige Intel Mitarbeiter auf, einen neuen Chip-Hersteller zu gründen: AMD. Mit der Unterstützung und der Finanzierung des Intel Gründers Robert Noyce wollten die beiden Gründer die wachsende Nachfrage nach Mikroprozessoren befriedigen. Ihr Erfolg ist Legende und führte zu einer Haltung, die das Neue, die Innovation, die Gründung als festen Bestandteil der Firmenkultur und Gesellschaft etablierte.

Bestärkt durch ihre Erfahrung und den finanziellen Erfolg, gründeten die ersten Mitarbeiter der Chiphersteller auch die ersten Venture Capital unternehmen, jene Risikokapitalgeber die ganz wesentlich für dieses Ökosystems sind. Wer auf der Suche nach eine stark skalierenden Geschäftsmodell ist, schafft das nicht ausschliesslich mit Erspartem, sondern benötigt ausreichend Kapital.

Europa und Österreich brauchen eine eigene Haltung zu Unternehmertum

Wenn wir also fast 50 Jahre Geschichte im Silicon Valley in nur 5 Jahren nachvollziehen wollten, bräuchten wir wohl eine Zeitmaschine und eine fundamentale Veränderung im Markt (zB Einführung des Computers) die als Trägerwelle dienen kann. Nicht unmöglich, aber unwahrscheinlich. Was also tun? Aufgeben? Nicht nötig. Es braucht nur eine neue Haltung zu Unternehmertum und Gründung.

Golden Gate Bridge

Dazu braucht es neue UnternehmerInnen, die ihr Vorhaben von Beginn an international ausrichten, aus dem reichen Erfahrungsschatz anderer Unternehmer schöpfen und die mittlerweile reichlich vorhandenen Best Practices nutzen. Durch Bewegungen wie „Lean Startup“, die iterative Ideenfindung und Businessplanung mit allen dazugehörigen Werkzeugen als Rahmen bieten, wird Unternehmensgründung gerade für Startups entzaubert und wird methodisch nachvollziehbar. Denn gründen ist keine Hexerei, auch wenn eine Portion Glück nie schadet.

Solche GründerInnen gibt es bereits in Österreich. Doch es braucht noch mehr. Haltungen verändern sich über Vorbilder, „Role Models“, die Einzelne ermutigen, andere Wege zu gehen. So hat Dietrich Mateschitz und Red Bull sicher mehr Menschen in Österreich zu Unternehmern gemacht als jedes Wirtschaftsförderungsprogramm. Es müssen also auch die erfolgreichen IT Unternehmer vor den Vorhang treten und damit andere inspirieren.

Auch eine solide Entrepreneurship Ausbildung an der Universität schadet nicht. Auch wenn jene die sich eine solche Ausbildung als Spezialisierung wählen wohl schon grundsätzlich eine Unternehmensgründung in Betracht ziehen, hilft die Auseinandersetzung mit Methoden und Werkzeugen der Erfolgsquote und damit zu mehr erfolgreichen UnternehmerInnen.

Blieben noch zwei Probleme: zum Einen fehlt es chronisch an technischen GründerInnen. Während viele der grössten amerikanischen IT Unternehmen von technischen Gründern, oft direkt aus der Universität, gegründet wurden, gehört das Berufsbild des Entrepreneurs bei heimischen Physikern, Software Entwicklern oder Mathematikern noch nicht zum Alltag. Dabei sind bewusst nicht jene gemeint, die sich oft bereits neben dem Studium „selbstständig machen“ um mit eigenem Gewerbeschein erst recht für ein Unternehmen zu arbeiten, sondern jene die tatsächlich ein skalierbares Unternehmen aufbauen wollen.

In vielen Gründungsteams fehlen daher die technischen Kompetenzen und müssen entweder teuer eingekauft werden oder von den Gründern selbst aufgebaut werden. Dabei ist gerade das eine Stärke im internationalen Vergleich: Österreich und Europa verfügt über ausgezeichnetes technisches Talent und hervorragende Ausbildung. Wir können vielleicht nicht jene 50 Jahre Historie des Silicon Valley aufweisen, sind aber ohne Weiteres konkurrenzfähig wenn es um Innovationsfähigkeit und technische Problemlösung geht. Kopf schlägt Kapital.

Womit auch der zweite wichtige und leider problematische Faktor genannt wäre: Risikokapital. Nach erfolgversprechenden Ausmassen rund um das Millenium, ist das vorhandene Risikokapital in der Region auf ein beschämend niedriges Niveau zurückgegangen. Die meisten Venture Capital Fonds in Österreich haben kein Investmentkapital oder existieren de facto nicht mehr. Damit fehlt aber eine wichtige Zutat für ein erfolgreiches Ökosystem, denn um ein funktionierendes Geschäftsmodell in der Realität zu etablieren, braucht es Risikokapital. Ohne Investment, keine Entrepreneure.

Obwohl die öffentliche Förderlandschaft in Österreich Einiges zu bieten hat und vielen Unternehmern die Gründung erleichtert, hat diese Form der Finanzierung Tücken und Lücken. Lange Entscheidungszyklen und oftmals rigide Projektvorgaben, die eine rasche Veränderung wie Startups sie benötigen, nicht ermöglichen, sind nur zwei der Nachteile. Die Definition von Innovation als Förderbedingung ist aus Sicht der öffentlichen Hand nachvollziehbar, hilft aber bei der Schaffung von Role Models nicht. Denn auch ein Startup mit wenig technischer Innovation, kann erfolgreiche Unternehmer hervorbringen. Zum Glück entwickelt sich eine kleine, aber feine Szene erfahrener Unternehmer, die als Business Angels ihr Geld und ihre Erfahrungen weitergeben, anstatt in Immobilien oder Aktien zu investieren.

Wir stehen am Anfang einer spannenden Epoche

Warum das alles relevant ist? Weil es genau jene UnternehmerInnen sein werden, die in den nächsten Jahrzehnten die Gestalt der Welt wie wir sie kennen, entscheidend beeinnflussen werden. Mark Andreesen, einst Netscape Gründer und jetzt angesehener Risikokapitalgeber, sagte richtigerweise: „Software eats the World“. Die Veränderung die durch Digitalisierung in allen Bereichen unseres Lebens stattfinden, stehen erst am Beginn.

eCommerce wird weite Bereiche des Handels noch dramatischer verändern als bereits geschehen, Medien stehen vor einem substantiellen Wandel, inklusive neuen Geschäftsmodellen, Mobilität wird sich ebenfalls radikal wandeln und die vielen Möglichkeiten neuer Hardware, egal ob am Körper (Wearables), in den eigenen vier Wänden (Home Automation) oder in der Luft (Dronen), sind noch gar nicht vorstellbar. Vielleicht heben wir in 10 Jahren tatsächlich am Bitcoinautomat unsere neue Weltwährung ab, wer weiss?

In dieser Welt als kreativer Unternehmer schöpferisch tätig zu sein, ist eine der spannendsten Herausforderungen unserer Zeit. Mit ein wenig Mut zum Risiko, den richtigen Methoden, internationaler Ausrichtung, erfahrenen Unterstützern und Risikokapital lassen sich Ideen entwickeln, die die Welt verändern. Oder wie Steve Jobs sagte: „We’re here to put a dent in the universe.”

This post appeared first in OCG Journal.


The exit: Someone probably wants to buy your company. Get organized!

This post appeared first on Venturebeat.

While knowing the basics of building a successful tech business with an eye toward getting acquired is important, what it comes down to is organization. Now is the time that you need to prepare carefully in order to exercise as much control over this process as possible. Things you do in the early stage have an inordinate influence on valuation and later negotiating topics.

You have a soft offer for your company, your shareholders are delighted and a few of you are already thinking about opening the champagne. Stop! Before you drive any acquisition conversations further, you need to get all shareholders together, and on the same page. Not only must you be in agreement, but you must all know the negotiating parameters, road map, business case and talking points absolutely by heart so there is no perceived disconnect when things get heavy. And things will get heavy.

This is the main error made by founders exiting for the first time. Sure, everyone knows the business plan. They know the cap table. You have more or less agreed on a price, but is your CTO a little nervous about delivering against the published roadmap? Will the time travel feature really be ready by October? How will it be ready, and which customers will pilot it? Your shareholders are delighted with an exit, but is your COO happy with an acqui-hire, while your VC has a hard requirement for a 10x return? Get this all on the table, and get it ironed out immediately. What does the story need to look like, internally, to assure you fall between 10x-12x? Does everyone know it by heart?

Here are some steps:

  • Organize an internal corp dev team (assuming you don’t have one already). These will be the people responsible for preparing materials, and for negotiating with the buyer. Build the story together. Above all, agree on a solid strike price: what is the threshold where everyone agrees you walk away from the table? And what are ‘no go’ terms – are you all OK with milestones? Are you all OK with a large escrow component? Will you consider an asset sale even when you really want a share sale?
  • When the story is built, rehearse with everyone and ‘war game’ it. Practice your positions. Practice your arguments.
  • Set up a very regular touch-point meeting with all stakeholders (weekly). Even in the early stages, when you aren’t in due diligence, you still want to get in the habit of keeping everyone in synch.

One thing to keep in mind when in the early stages of preparing a sale of your company: senior corp-dev people on the buy-side have probably done 5 of these deals this year alone. They are all experts in ninja mind control. Even though your company is awesome, they will be on the lookout for disconnects, and they will often add negotiating points into the early discussions that appear crazy, but are designed to test your team. If they sense something is wrong, in the very best case it will be used against you as negotiating leverage. The price will drop heavily if you aren’t careful. In the worst case, it will kill your deal.

Open the M&A Pipeline…carefully!

You have a soft offer to acquire the company. How do you make that a hard offer? And how do you assure you maximize your valuation? There are a lot of fuzzy variables that quickly come into play, and understanding and managing them is essential. If you are a first-time seller, you have a handicap immediately. You are unfamiliar with the process, and you also don’t have the brand name that would add value and a sense of urgency to the buyer. You may not have a big network in the Valley, and if your last name isn’t ‘Jobs’ or even ‘Houston’ or ‘Hoffman’, you will have limited cards to play. The key is understanding your cards and counting them carefully.

First comes the messaging — use your VC and board members to open conversations with potential buyers. But do it carefully. If you are too aggressive, potential buyers might opt-out early. They don’t want to be pushed around. Your ‘plan A’ should be growth, delighting you customers and acquiring new ones. And probably raising funds (and valuation) to achieve this. You aren’t ‘for sale’, but, yes, the conversation has been initiated, and the chairman of your board thinks it is fair that all potential partners participate.

Here are a few variables that you can control, and you should be aware of while in the early stage of the acquisition process (pre-term sheet):

  1. US operational plan – if you are from outside the US, then you already have US customers (or a US pipeline), and you have elaborated a business plan to support this. Ideally, you have a US entity, and are hiring to support growing revenue and pipeline, but at least you should have a credible plan. Talk to a lawyer. Talk to an accountant. Build the plan if you don’t have it already. Execute early.
  2. Early due diligence items – It’s a simple thing, but if a potential buyer approaches and wants to start the conversation, it is MUCH better to say ‘We have a data room. I’ll give you access credentials and you can see business plan, etc. immediately.’ Than to say, ‘ummm… We’ll need two weeks to prepare all that stuff.’ Being prepared early, and developing these materials is not only good for your business, but is also a non-aggressive sign that the process is moving ahead.
  3. Intellectual Property Strategy – have you filed US patents yet? Do you have an IP strategy? Non-US founders will often take the approach of spending TONS of money filing an ‘everything but the kitchen sink’ PCT patent with a German lawyer, for example. Sure, that’s cool. But I would strongly suggest considering quick US patent filings. If you are already in an acquisition conversation, getting a filing date early, and protecting your assets directly in the US is a very, very good idea. If you aren’t protected in the US, and you have a US buyer, this may cause problems. Cross-border patent treaties are nice in theory, but I suggest you read up carefully here, and consider filing a quick US provisional patent to put a stake in the ground.
  4. Human resources – pay very careful attention to key employees as early as possible. Do you have three engineers upon whom the fate of your company rests? Make sure they are happy. If required, make sure there is a plan to include them in the process, or at least protect them and yourself at the critical stage. Look carefully at everyone’s contribution to the code base. If you do this too late, the buyer might already have sniffed them out, and this becomes an acqui-hire. If key employees will be part of the process (and they might be at a later stage), coach them carefully.
  5. Cap table – make sure it is super clean. I’m sure you already bought out your university roommate’s shares, but make double sure there is nothing weird here. Buyers hate complications, and even if you are awesome, any unresolved complexity might kill your deal at that late stage when the buyer’s attention to risk becomes really, really high.
  6. Confidence – this is fuzzy, but probably one of the most important things. And it relates to your whole team. Make sure that everyone on the team understands the plan, and can tell ‘the story’ perfectly, with excitement and energy. As a founder, you need to lead by example. Watch some YouTube videos of Steve Jobs’ keynotes. Do some Zen meditation. Practice the story over and over again in your head: the growth, the IP, the roadmap, the laser-focused execution. Honestly, non-US founders often suck at this, so you need to practice. A lot.

This is a lot to digest, so I am going to leave it here for now. If you have covered the above points well, you are in an excellent position to start working with a term sheet. In the next two posts, I’ll go into further detail about what you need to do when you have a solid offer, and particularly managing the risks that appear during term sheet negotiation, due diligence, and finally closing.

This is part two of a four-part series on start up exits by SpeedInvest partner Erik Bovee.


The exit: Things every startup founder should know

This post appeared first on Venturebeat.

Silicon Valley talent comes from all over the world. Approximately 30 percent of software, semiconductor and computing companies in the US are founded by foreigners, and over 50 percent of tech startups in Silicon Valley are founded by immigrants. Consider this along with the fact that an absurdly high number of acquisitions in the tech industry (and acquisitions in general) happen right here in California.

If you have a successful startup, you are more likely to come from Budapest than Burlingame, but you are also most likely to find an exit in the Valley. Hopefully this guest post should serve as a guidebook for everyone, but should be especially useful to founders who suddenly find themselves landing at SFO with a nine hour time delay and have to take a taxi straight to a board room filled with EVPs and lawyers.

If you are a founder (from anywhere in the world), you think you have built something exceptional, and if you dream of moving to Cupertino or Mountain View, never seeing winter again and wearing a nice, shiny ‘Vice President’ badge at Apple or Google, please read carefully.

I’m going to assume that you’ve done all the pre-exit stuff perfectly (viz. building a business). A few things stand out that any company needs to do before even considering talking to potential buyers. I’ll just summarize these, because this post is really for those who already understand the basics.

  1. Differentiation – you have something everyone needs. In many cases (especially for non-US startups) this will be world-class IP: you have built a time machine; you have invented near light-speed space travel at almost zero cost. In our most recent case it was solving a problem with real-time Web collaboration that even Google had struggled for years to get right. Maybe you have captured a really, really important customer segment, maybe your growth is off the charts and Yahoo! needs your customers. If the latter has happened, you are probably already incorporated in Delaware, and the CEO has been in Palo Alto for 3 years. More likely, if you are a technician from outside the USA, you have some very interesting intellectual property (that you have protected well; this will be the subject of a later post), and you have turned that into an even more interesting product, and a successful business.
  2. Business Development – you have hired someone senior in the Valley full-time. You have been doing BD for 12 months, and you have US customers. At least a pilot. You have a few big partners lined up. Your BD person is doing an excellent job. She is senior. She coordinates well across time zones, and spends 10-weeks a year at company HQ. There is trust. Results. The whole thing runs like clockwork, because you invested in skilled business development early. And you cannot invest in good BD early enough: take a quick look at the “Team” page and you’ll get the idea. Andreessen Horowitz makes sure their companies are well furnished with BD and growth resources from day one. For foreign companies, also please note: US customer revenue will generally count approximately 2x in your exit valuation vs. non-US. Unless you own China. Then ignore that.
  3. The story – you have created a compelling story out of your growth, your differentiation, and you know how to tell it. You have a whole suite of investor and marketing material that looks completely professional (and completely ‘American’). Hire a designer. Get local advice. Practice it, and polish it 500 times. NO matter how simple the story you are telling, keep working on it. Make it amazing. And when it is good, start pushing it out to the press. Make a plan that shows you are hitting milestones systematically. Your company blog should also reflect this. There should be VERY regular updates, significant milestones. You are growing fast, and everyone knows it. Your company radiates success. A quiet company = a company that is facing internal struggles. An outdated blog smells like death.
  4. Sales – you have customers, and you have built a believable pipeline. Sales, BD and CEO spend a LOT of time in New York or California. Prioritize your sales efforts accordingly!
  5. Product – Non-Silicon Valley entrepreneurs often don’t realize how quickly they need to move. Research your market in the US, Asia. Figure out your roadmap and hit milestones with punishing accuracy. If something doesn’t work in your CTO /product team, deal with it immediately. Immediately. Break it, and repair it as fast as you can. Product announcements that go nowhere, delayed releases, features that are behind the curve. Death.

I’m assuming that everything else is perfect. You have fought like crazy, and your business is growing. Your product works. Customers need it. The market is hot. You have revenue, and perhaps a lot of it. You are in VentureBeat, TechCrunch, and have a passing mention in Forbes.

Now comes the tricky part. I was talking with a good friend who has a successful US tech business. Revenue is doubling every year. They have nearly one hundred employees after just 3 years. Sexy technology. Purely bootstrapped. Very hot market. Things are happening. But they haven’t been acquired.

I’m amazed anyone ever gets acquired. It’s the hardest thing. The process is so weird, and everything can go wrong at any moment. And it usually does. Selling a company is very different from selling a product. The perception of risk on the part of the buyer is different, and there are often far more people involved than at any other significant event in the life of your company. An acquisition is a very, very fragile thing. And it often takes much longer than you planned. You need to go about it with scientific precision, and complete dedication.

You want to be bought, not sold

This is obvious. You don’t want to set the premise that you are looking to be acquired. It signals immediately that something is wrong: the business is unsustainable, the founders lack confidence, the market is about to head south.

But you do want to open the acquisition conversation with potential buyers, and there are many ways of doing this without immediately putting yourself up for sale. One of the best ways is to set an early expectation about your fundraising agenda. Your growth is great. The market shows no sign of cooling off, so you are raising an $XX million series-B round in Q4 of this year. You need this plan. Start building it now because it will be the backstop to many future acquisition conversations.

If you are lucky enough that a potential buyer opens the conversation, and asks up front “Is your company for sale?” (or, even better, ‘We want to acquire your company!’) the answer is always the same if it is the first conversation you have around this subject: We weren’t considering selling. Growth is great; we are raising money in Q4. But, if the price were right, we might consider it. And leave it at that for the moment.

Now the entire conversation with all of your other partners changes. Your company may or may not be up for sale. Someone has made an overture, but your “plan A” remains customer acquisition, fundraising and growth. You have a limited window, and you want to make sure that all viable acquirers participate, but you don’t want to be desperate or pushy. You also don’t want to ruin your pipeline, or scare anyone off. Shareholders and board members can help drive these conversations while not jeopardizing customer relationships. This is the time when you need to organize internally, systematically, and it becomes a process.

If no one has proposed acquiring, then you need to ask yourself ‘Why?’ Revisit points 1-5, above, and do them better.

So you have built a solid business with a clear exit path, you have a soft offer, you engaged your investors and your board, and you have your early M&A messaging under control. And you have also built a clear plan B (this should always involve raising funds and/or accelerated growth), tested it, and your buyer is aware. Now things start to get tricky…

This is part one of a four-part series on start up exits by SpeedInvest partner Erik Bovee.

On the road for “Mission Possible”

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In this series inventures joins entrepreneurs at their adventures on the road. In part one Michael Schuster shares the road trip experience from an investor’s point of view.

It seems reasonable to set big goals for yourself when you travel to a place called Mission. After all, the district in the middle of San Francisco is home to some of most inspiring web companies as for example Automattic, the makers of WordPress. Our mission for this trip was not bad either. Our Slovenian startup Flaviar went on a trip to San Francisco which should help them to find new investors and open the doors to the US market. Now, I was about to join them for two weeks during this important trip and crucial negotiations.

So not only 40.000 km travelling were lying ahead of me but also seven intense meetings, at least the same amount of burgers, 75 of the best pitches I’ve ever seen, a lot of coffee and even the heaviest earthquake in San Francisco in 15 years.

From Ljubljana to SF in two years

In average I go on one or two trips a year with one of our startups. From my own experience I know that all of them are intense, but only in a few cases you achieve the desired success. Though, to go to the US with Flaviar was a logical step. After two years of product development and market research in Europe, the team around founder Grisa Soba has now entered the period of scaling. Their products – high quality spirit subscriptions and hard to get full-size bottles – fit the US market just perfectly. After all, some people were already enjoying Flaviar products in the US.
The reason for joining them on their US road trip as an investor is quickly explained: it is part of our investment into the companies, to support them on an operational level, although travelling with the guys from Flaviar actually feels like a road trip with friends. Still, they shall benefit as much as possible from our connections and experiences. So I can help with Business Development and network but also Erik Bovee, who oversees the US operations of SpeedInvest is a great support. We help to arrange business meetings and introduce the teams to our contacts – in Flaviar’s case producers of spirits and potential investors. But we also give feedback from a different angle and together we try to understand how the US market works.

Pitching skills from a different planet

What struck me most at all the pitches and meetings is the level of ambition. During my stay in the Valley I had the chance to attend the Demo Day of YCombinator, one of the best American seed accelerators. Altogether, I have seen 75 pitches there and every single one of them was clear proof of the enormous pitching skills that people hone in the US. Although the potential of startups in CEE is equally impressive as in the US, their pitching skills need catching up – in terms of communication and but also in terms of goal settings. Most startups on the US list their market size with amounting up to billions of dollars because they simply believe that it is possible. And as matter of fact, quite a few of them reach their goals.

Tripling turnover, without changing anything

So with Flaviar camping out in San Francisco they wanted to achieve three things: Firstly, get to learn more about their target group. Secondly, build a local network and increase their local footprint. They did well. By the end of our trip, I’ve not only learnt that the guys have great cooking skills but also that they had already tripled their turnover – simply by going with the US flow and focusing on growth with an increased ambition level. And that’s only a little taste of what’s possible on the US market.

To sum up, the two weeks were not only full of excellent burgers (and in the end of the trip with a bit of a school week collapse feeling) – there were also good news on the business side. Yet the details cannot be disclosed at this point, new supporters were found that will mark the next big step on Flaviar’s journey and turned this ‘On the road’ trip into a success.

The Revolution Will Be Streamed!

It’s been fascinating watching the media industry being ripped apart, and pulling itself back together again, over the last 20 years by the Internet and Software. Disruption started with print and all its manifestations, associated use cases and business models. Then it was Music’s turn when Napster hit it big followed by more “legit” options such as iTunes, Spotify, Pandora, Video was next and Over The Top (OTT) video streaming service combined with an explosion of devices to consume video on have completely changed the way people are watching video – and TV followed closely in its wake. No more tuning into Channel Zero every weekday at 7pm – instead you watch your favorite esports team online or call in sick to binge on the new season of ….

Internet video traffic exploded and will comprise 79% of all consumer Internet traffic in 2018 (1). Delivering high quality media streaming can be technically complex due to the large variety in content formats, protocols, transmission options, and device-specific factors, for example. Certainly distribution is the major cost factor – for successful content at least. And while demand is very healthy, customer expectations are increasing and not delivering the expected quality of experience impacts viewer engagement metrics such as abandonment rates, viewing time and ultimately a forecasted $20B loss of revenue for global premium brands in 2017 due to poor quality video streams (2).

Bitmovin today announced its investment by Speedinvest and we’re excited to be able to support the team to continue to innovate around streaming media technology and bring solutions to market that will enable new cases and deliver order of magnitude improvements in the performance, quality and economics. The ability to massively scale cloud-based transcoding and encode hours of HD video in minutes, or be able deploy the computing resources to significantly reduce bandwidth requirements without compromising on quality, has value. A single client/SDK suite that deliver up to double the effective bitrate throughput compared to Apple HLS, especially in variable mobile network conditions and without adding stalls/buffering, is relevant for end users, service providers and advertisers alike.

The revolution is being streamed – and bitmovin’s streaming it!

(1) Cisco Visual Networking Index: Forecast and Methodology, 2013–2018,

(2) Conviva, 2013.

Exciting news from!, the technology leader in indoor localization and navigation, has been selected to participate in the “Entrepreneurship-in-Residence” program, launched by the Mayor of San Francisco, to explore innovative solutions to civic challenges. appointed new CEO, Hannes Stiebitzhofer to lead the company in its commercial worldwide expansion. was selected as one of the six startup companies to participate in a new “Entrepreneurship-in-Residence” program. The voluntary, sixteen-week collaboration starting March 2014 aims to bring together the private sector and City departments to explore innovative solutions to civic challenges that can lower costs, increase revenue, and enhance productivity.


Nearly 200 startups from 25 cities and countries around the world applied to the program. The diverse group of applicants ranged from seed-stage startups to later stage startups and across software, hardware and services – including serial entrepreneurs, NASA engineers, employees of leading technology companies, and several patent holders including some that have been granted more than 100 patents. San Francisco City departments and agencies selected the finalists through a competitive process based on their needs and priorities. will collaborate with the San Francisco International Airport on exploring and enhanced navigation and location-based services. offers a flexible and accurate real-time localization software for indoor venues, where GPS signal coverage is difficult to use. technology is widely used in positioning and navigation solutions for airports, shopping malls, hospitals, museums and enterprises. Way-finding and routing, proximity marketing and interactive guides, analytics and asset tracking are a few of the features technology offers to its customers.

The platform uses a range of technologies, consisting of client-side technology that combines available signals from the device sensors (including accelerometer, gyroscope, barometer, and compass) with radio signals such as 3G, Wi-Fi, geomagnetic fields and Bluetooth LE, for accurate and robust positioning. unique sensor fusion and post-processing methodology deliver highly accurate positioning estimates, at the same time keeping footprint and power consumption low.

Hannes Stiebitzhofer has been appointed the CEO of “I am very much excited to join as I see indoor navigation only as a first step. The technologies developed by this young and great team will enable many applications we haven’t thought of”, comments Stiebitzhofer.

Prior to joining, Stiebitzhofer was Technical Director at LearningSigns and was responsible for the technical development of mobile educational games experience. He has vast expertise in the fields of Entrepreneurship, Product-Management, Software Development, and Project Management. Since 2000, Stiebitzhofer has successfully founded and co-founded several companies and has held directive positions in those and other businesses.

Expectations vs. Reality: What I learned in my first year @ Speedinvest

Having just completed the first year at Speedinvest as the latest team member joining in the US, it was great to reflect back over the holiday period and think about the great things that happened, and compare the actual events to the expectations I had joining the team.

What an amazing opportunity!

At Speedinvest we’re seeing on average 30 new startup decks, pitches, etc. per month – and more when Oliver is on TV in the Austrian version of SharkTank. We only invest in about 1.5% of those, but what’s clear is that

  • There is a great (technical) founder talent pool in Europe and they’re building amazing technology – but sometimes disconnected from the nexus of the market they operate in.
  • Business experience among founders is less than in the US – serial entrepreneurs are rare
  • Valuations are, say, 25% of US valuations for comparable early startups with similar technology
  • Most European startups have opportunities to attract significant government grants

Clearly there are a lot of opportunities for investors and founders alike to take relevant companies with world-class technology and IP to the US.  Helping founders in that process is simply one of the most rewarding things ever!

Silicon Valley is all that people think it is – and then some

Within days of arriving in the Bay Area you can feel and experience firsthand how conductive the environment is to business. The sheer breadth and depth of resources (skills, expertise …) is simply breathtaking. The efficiency of the ecosystem is unparalleled and incomparable to Europe. The network is highly interconnected and dense. And people generally like to help! There are experts for everything, and they are never more than a few phone calls – and a 30 minute drive for a f2f meeting – away. This is a scale as well as a cultural thing.

I cannot see how SV can be replicated elsewhere except through many years’ application of brute force public investment firepower and a 180 degree shift of mindset.

In California, your next critical meeting is tomorrow, not next month

If you want to meet the VP of so-and-so and you have an interesting proposition, you’ll be meeting her within days. Asking for a meeting in 2 weeks means you’re really not that interested in a reply. Compare this to Europe where meeting any senior management requires weeks of careful planning (read “waiting”).


Austrian tap water is superior. Even better, there is tap water in Austria, and it is readily and abundantly available.

What an amazing opportunity! Cont.

US investors – by and large – have a limited interest in investing in European early-stage companies. Even though you may have a great idea or technology, and good initial indications of product-market fit, unless you are located close-by and within arm’s reach of US VC’s it will be challenging to raise funds in the SV. This is not necessarily due to fiscal/legal complexities related to cross-border investing, they are well understood and the process scales. It is more a matter of Silicon Valley already having very good access to a deep pool of great entrepreneurs and startups – and doing weekly sync calls at 7am for the next 2 years and flying 11 hours to attend a start-up board meeting in Munich may not be all that attractive to everyone. But a European startup that moves to the US, or at least having the commitment and plan to do so, and willing to play by SV rules will find US investors well accessible.

Founders moving to the US

There’s an almost mystical appeal for (European) founders to move to Silicon Valley. It’s the tech vortex, where you walk among the superstar founders and investors contemplate multi-million dollar funding rounds, multi-billion dollar valuations and grow your venture to biblical proportions. Some of that can happen, but a few conversations with immigration and financial/tax advisors can easily bust that bubble. The reality is that there are transaction costs moving to the US, the process can be “messy” and benefits are realized mainly in the long term.

If you were dreaming of very low tax rates – dream on and apply for your next government grant in Europe. If you have not incorporated your startup over 1 year ago, come back later as your immigration options may be very limited. If your partner wants to join you moving to San Francisco, and you’re not married and she’s not on the Olympic team – book a minister and call a caterer now.

Low touch, high impact.

At Speedinvest we’re high touch. We work operationally with many of our portfolio companies on a wide variety of business aspects of running their company. Every day. All day.  It’s the only way to bring consistent results.

Although I do want to be a “low touch, high impact” investor when I retire grow up.

Founders: Get ready to compete

There are orders of magnitude more startups in SV, with founders as smart as you (and smarter) and they are building their 3rd venture backed startup. They have discussed IP licensing agreements and terms sheets over lunch with their classmates in college, and taken their first M&A courses as freshmen, and have seen more startups being created and folded up by the time they get out of university than the number of issues of Wired you have ever read. As well as a place of great opportunities, SV is a highly competitive place for startups.

Americans, including most investors, are super friendly. They’ll ask “how you are doing” and will think you pitch was “very interesting” and definitely a reason to “stay in touch”. Spoiler alert: You can color them red in your spreadsheet pipeline tracker. By all means keep them updated, but you can expect very clear signals when there is serious interest – “staying in touch” is not one of them.

I bet you are a first time founder – 5 facts on the Austrian Startup Ecosystem

In our little startup bubble we work with assumptions. They are a way of keeping you productive and test your hypothesis when making decision. But from time to time, it seems necessary to question those assumptions. In this case, we wanted to answer some questions about the state of startups in Austria. How many serial founders are there? What’s their background? What drives them? What do they think about subsidies and local business angels? What about women in startups?

Because those answers might be relevant for others too, we published them in our 3rd annual Austrian Startup Report where you will find answers to all of these questions and a lot of additional interesting facts on the Austrian ecosystem.

The Austrian Startup Report is an ongoing research project to get structured data about the development of the growing startup community in Austria. It provides detailed information about a nationwide, representative selection of startups, investors and public institutions.

Why we do it:

  • Raise attention for startups, entrepreneurship and growing companies. Because that helps all of us in doing it.
  • To find out what Austrian startups need to grow and thrive.
  • To make grounded decisions, based on facts about the influence of public and private support initiatives.
  • Benchmark our startup community on an international level, thus setting it in context to other cities and countries in Europe.

So, how did we do this?

We conducted a qualitative survey, collecting thoughts of 50 interviewees within the ecosystem, based on which we designed a quantitative questionnaire which has been completed by 575 interviewees.

Most of them are founders or work in a startup (87%), the remaining 13 percent were either investors (7%) or funding agencies (6%). Surprising revelation? The average person working in the Austrian startup industry is male, aged 32 and has completed a university degree.

What else did we find out?

Fact 1: Ecosystem

The Austrian ecosystem still is in the early stages of development. 73% of the founders are first-time founders. 70% of the startups interviewed are in their idea / early stage phase.

Fact 2: Funding

The majority (70%) of startups that received funding is financed by private investors. The size of the investment is growing, but still remains clearly below international levels. One third has received more than 500.000 Euro in funding.

Fact 3: Gender

The gender gap is still huge. Only 12% of the interviewees are female.

Fact 4: Business Environment

The Austrian business environment is heavily criticised. 93% believe that social security taxes and non-wage labour costs should be lower. 83% are of the opinion that business angel investments should be tax-deductible. Further 80% feel that the outdated trade regulations should be reformed fundamentally.

Fact 5: Mindset

73 % don’t see the value of startups recognized by society and 75 % don’t think startups are valued enough by the Austrian government. Moreover, 90% of interviewees think that our society lacks a “culture of failure” and assume that the absence of a culture of failure is the biggest restraint for entrepreneurship.

So, what next?

Being active in the Austrian scene for a long time and conducting this study for the third time in a row we see evidence that the awareness of Austrian startups increases slowly but constantly. Various successful initiatives such as Pioneers and Austrian Startups, as well as growing interest in the general public (e.g. 2M2M) support our confidence that the importance of entrepreneurship will rise further in the upcoming months and years.

But we need to be faster. Other spots like Berlin and London have already a headstart and Austria seems to miss out on massive opportunities if we not act swiftly. Some necessary steps needed:

  • Creation of tax incentives to foster private investments (get out of real estate and into startups!)
  • Raise awareness for the topic of startups, entrepreneurship and include this in school curricula
  • Liberalisation of corporate and labour laws
  • Allow for alternatives in investment (crowd-funding, etc.)
  • Rethink subsidies from the ground up

Read the full Austrian Startup Report.

Visionen für Österreich – read the paper by


Also we would like to thank our partners: